28 year old investing advice needed

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Aggienat10
Posts: 5
Joined: Mon Oct 30, 2017 2:54 pm

28 year old investing advice needed

Post by Aggienat10 » Mon Oct 30, 2017 3:51 pm

Last month I turned 28, and I need some investing advice. Here is some info about my situation..
-currently single, no children
-not a home owner, I live in an area where housing prices are steep, so I rent.
-I have a modest salary, but I save aggressively
-car paid off, student loans paid off (graduated in 2012), zero credit card debt..so I do not hold debt
-Cash savings, 160K
-chose to have a Brokerage account instead of a Roth..which currently has 25k in it (mostly stable u.s. dividend stock, Apple, F, etc.)
-Currently have 60k in company 401k..increased my contributions to 18k starting last year, with a 3% employer match.
vanguard total US stock market VTSMX-30%
vanguard total int stock market VGTSX-20%
vanguard small cap index fund-15%
vanguard mid cap index fund -15%
Vanguard energy VGENX-10%
vanguard wellesley income VWINX-5%
vanguard money market fund- 5%
(my current returns are only 8% in the company 401k plan)

How do my 401k picks look? Too much overlap? Am I holding too much cash? Am I contributing too much to my 401K? Should I cut back contributions and put more into brokerage account? With housing prices being so high, Should I avoid taking on a mortgage for as long as possible? I believe that the market is overvalued, thus having more cash on hand in the event of a bubble burst makes more sense.

All advice is appreciated!
Last edited by Aggienat10 on Mon Oct 30, 2017 5:45 pm, edited 1 time in total.

billfromct
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Re: 28 year old investing advice needed

Post by billfromct » Mon Oct 30, 2017 5:26 pm

You may want to fund a Roth IRA (normal or backdoor depending on your modified adjusted gross income, MAGI) in order to build some tax diversity in your retirement accounts.

I invested in my tax deductible IRA & 401k throughout my career & maxed out my Roth IRA every year when they became available in 1998.

My retirement accounts are 94% taxable/6% Roth. When I start required minimum distributions (RMDs) from my tax deductible retirement accounts & collect SS in a year or so, it will bump me up a tax bracket in retirement compared to full time employment now. Who would have thought?

I wish Roth retirement accounts were available in the 1970s (IRAs) & 1980s (when the 401k became widely available) so I could have built up my Roth retirement accounts early in my career, in my 20s and 30s.

I encouraged my kids (now in their mid/late 20s) to fund their Roth IRAs with their 1st after school job at age 16.

bill

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Duckie
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Re: 28 year old investing advice needed

Post by Duckie » Mon Oct 30, 2017 5:34 pm

Aggienat10, welcome to the forum.
Aggienat10 wrote:How do my 401k picks look? Too much overlap?
Not only too much overlap but too much tilt. VTSMX, VGTSX, and a good total bond fund are all you need.
Am I holding too much cash?
You don't need any cash in a 401k.
Am I contributing too much to my 401K?
No. Maxing the 401k is a good idea.
Should I cut back contributions and put more into brokerage account?
No. Continue maxing your 401k and max a Roth IRA before adding to the taxable brokerage account.
With housing prices being so high, Should I avoid taking on a mortgage for as long as possible?
You're 28, single, with no kids in a high-priced housing market. Why do you want to buy?
Last edited by Duckie on Mon Oct 30, 2017 6:26 pm, edited 1 time in total.

Aggienat10
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Joined: Mon Oct 30, 2017 2:54 pm

Re: 28 year old investing advice needed

Post by Aggienat10 » Mon Oct 30, 2017 5:37 pm

Thanks..My 401k is not zero, Its currently at 60k. If I max for the next 2 years, I should surpass 100k if the market gains continue
Last edited by Aggienat10 on Mon Oct 30, 2017 7:42 pm, edited 1 time in total.

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ruralavalon
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Re: 28 year old investing advice needed

Post by ruralavalon » Mon Oct 30, 2017 6:04 pm

Welcome to the forum :) .

Happy birthday last month :D .

It's good to see you starting young, debt free, saving aggressively, and making maximum contributions to your 401k. You are not contributing too much to your 401k, unless you are depriving yourself of something else you need. Keep up the good work.

Keeping a high contribution rate is by far the most important thing you can do at your age. It's also important to make full use of tax-advantaged accounts, so I suggest that you also open an IRA at a low cost provider like Vanguard and contribute every year.

Aggienat10 wrote:
Mon Oct 30, 2017 3:51 pm
Last month I turned 28, and I need some investing advice. Here is some info about my situation..
-currently single, no children
-not a home owner, I live in an area where housing prices are steep, so I rent.
-I have a modest salary, but I save aggressively
-car paid off, student loans paid off (graduated in 2012), zero credit card debt..so I do not hold debt
-started maxing out 401k last year.. and get a 3% employer match, my goal is to have over 100K in it by 30.
-Cash savings, 160K
-chose to have a Brokerage account instead of a Roth..which currently has 25k in it (mostly stable u.s. dividend stock, Apple, F, etc.)
-401k, 60k
vanguard total US stock market VTSMX-30%
vanguard total int stock market VGTSX-20%
vanguard small cap index fund-15%
vanguard mid cap index fund -15%
Vanguard energy VGENX-10%
vanguard wellesley income VWINX-5%
vanguard money market fund- 5%
(my current returns are only 8% in the company 401k plan)

How do my 401k picks look? Too much overlap? Am I holding too much cash? Am I contributing too much to my 401K? Should I cut back contributions and put more into brokerage account? With housing prices being so high, Should I avoid taking on a mortgage for as long as possible? I believe that the market is overvalued, thus having more cash on hand in the event of a bubble burst makes more sense.

All advice is appreciated!
Aggienat10 wrote:
Mon Oct 30, 2017 5:37 pm
My 401k is not zero, Its currently at 60k. If I max for the next 2 years, I should surpass 100k if the market gains continue
You could simplify your 401k picks, and reduce unnecessary overlap and duplication.

I would not hold 5% cash in a 401k. Cash will almost certainly give you a negative real return net of inflation. A good intermediate-term bond fund at a higher allocation would be better in m my opinion.

. . . . .

Some additional information would be useful.

Are any bond funds offered in your 401k? Please give fund names, tickers and expense ratios.

Your accounts are:
Taxable $25k
401k $60k
No IRA
Is that correct?

About how much of your "cash savings 150k" do you intend for long-term investing, as opposed to an emergency fund or for some shorter term goal?

You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

. . . . . .

At age 28 I suggest around 20% in bonds. That's expected to significantly reduce portfolio volatility (risk), with relatively little impact on portfolio performance. Please see the wiki article SatuMedia Investment Philosophy, part 3 "Never bear too much or too little risk".

I suggest around 20-30% of stocks in international stocks. Historically that would have captured about 84-99% of the maximum diversification benefit. For a pdf of a Vanguard paper on the subject Google "Considerations for Investing in Non-U.S Equities", see pp. 5-6.

My suggestion for your 401k is:
Vanguard Total Stock Market Index Fund. (VTSMX)
Vanguard Total International Index Fund (VGTSX)
An intermediate-term bond fund with a low expense ratio
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Aggienat10
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Joined: Mon Oct 30, 2017 2:54 pm

Re: 28 year old investing advice needed

Post by Aggienat10 » Mon Oct 30, 2017 7:39 pm

Thank you for your input. The information on this forum is helpful and I appreciate every response.

Are any bond funds offered in your 401k? Please give fund names, tickers and expense ratios.
-Yes, here are the Bond funds offered
FINPX- fidelity inflation protected bond fund, ER .45
Vanguard VIPSX- inflation protected bond fund, ER .2
VBMSX-vanguard total bond market index fund, ER .15
VBISX- vanguard short term bond fund, ER .15

Your accounts are:
Taxable $25k
401k $60k
No IRA
Is that correct?

-That is correct
About how much of your "cash savings 150k" do you intend for long-term investing, as opposed to an emergency fund or for some shorter term goal?
-In a year I should have 200k cash. I would like to have 150k cash in savings account at all times. The last recession spooked me. I saw people I know lose their jobs, home, and savings.

Helo80
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Re: 28 year old investing advice needed

Post by Helo80 » Mon Oct 30, 2017 8:46 pm

Aggienat10 wrote:
Mon Oct 30, 2017 7:39 pm
-In a year I should have 200k cash. I would like to have 150k cash in savings account at all times. The last recession spooked me. I saw people I know lose their jobs, home, and savings.

To be 100% blunt and straight forward, you would be better off long-term if you kept 12 mos of expenses and like $10K for relocation costs to anywhere in the country if you lost your job and put the rest in a taxable index fund or mutual fund than to keep $150K in cash. Long term, you're making an emotional bet based upon history that will lose out to inflation.

Many of us lost a lot, some more than others, in 2009. All of us who stayed course and did not cash out our investments in the lows are doing okay. I checked my individual stock holdings that I have only bought two or three funds since 2007, and I broke a monetary barrier that has not been broken yet (in a good way).

I hope that you would be open minded on keeping $150K in cash, but I do not know your particular situation.

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badbreath
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Re: 28 year old investing advice needed

Post by badbreath » Mon Oct 30, 2017 10:13 pm

vanguard total US stock market VTSMX-30%
vanguard total int stock market VGTSX-20%
vanguard small cap index fund-15%
vanguard mid cap index fund -15%
Vanguard energy VGENX-10% Sell and put in total US
vanguard wellesley income VWINX-5% Sell and put in bonds
vanguard money market fund- 5% Sell and put in bonds
(my current returns are only 8% in the company 401k plan)

How do my 401k picks look? Too much overlap? Yes Am I holding too much cash? Yes Am I contributing too much to my 401K? No max if you can Should I cut back contributions and put more into brokerage account? No max your 401k then Roth then brokage With housing prices being so high, Should I avoid taking on a mortgage for as long as possible? No you do not know if you are there a long time so renting is better I believe that the market is overvalued, thus having more cash on hand in the event of a bubble burst makes more sense No you will loses to inflation.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

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ruralavalon
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Location: Illinois

Re: 28 year old investing advice needed

Post by ruralavalon » Tue Oct 31, 2017 4:47 am

Aggienat10 wrote:
Mon Oct 30, 2017 7:39 pm
Thank you for your input. The information on this forum is helpful and I appreciate every response.

ruralavalon wrote:Are any bond funds offered in your 401k? Please give fund names, tickers and expense ratios.
-Yes, here are the Bond funds offered
FINPX- fidelity inflation protected bond fund, ER .45
Vanguard VIPSX- inflation protected bond fund, ER .2
VBMSX-vanguard total bond market index fund, ER .15
VBISX- vanguard short term bond fund, ER .15
401k.
In your 401k I suggest using:
Vanguard Total Stock market Index Fun (VTSMX);
Vanguard Total International Index Fund (VGTSX); and
Vanguard Total Bond Market Index Fund (VBMFX).


The three-fund portfolio.
Using these three funds in combination gives you a simple easy to manage portfolio, with both very broad diversification (to decrease your risk) and very low expense ratios (to increase your net return).

Please see the wiki article "three-fund portfolio", and the forum discussion "the three-fund portfolio".

It's often best to treat all long-term or retirement accounts together as a single unified whole, and coordinate the investments in those accounts, so it's important to also think about other accounts.


Agienat10 wrote: Your accounts are:
Taxable $25k
401k $60k
No IRA @ Vanguard $11k, suggested
Total = $96k

Is that correct?

-That is correct
ruralavalon wrote:About how much of your "cash savings 150k" do you intend for long-term investing, as opposed to an emergency fund or for some shorter term goal?
-In a year I should have 200k cash. I would like to have 150k cash in savings account at all times. The last recession spooked me. I saw people I know lose their jobs, home, and savings.
Emergency fund.
About how much per month are your basic living expenses? How stable is your job? How stable is the company and industry you work in? (I am trying to understand any need for the large emergency fund.)

I agree with Helo80 that it may be better to just keep a year's worth of living expenses plus $10k moving expenses in reserve, and invest the rest. (But, your being comfortable with your savings and investments is important.)


IRA.
I strongly suggest opening an IRA at a low cost provider like Vanguard, contributing $5.5k now for 2017, and adding $5.5k another in January for a 2018 contribution.

Long-term it's important to make full use of all possible tax-advantaged accounts like IRAs. It's important to start now, the annual contribution limit is on a use-it-or-lose-it basis. If you don't contribute during a year, in a future year you cannot do a catch up contribution for an earlier year.

Regular contributions (but not gains) to a Roth IRA can be withdrawn without penalty or tax at anytime for any reason.

What is your tax bracket, both federal and state? (That will help determine whether a Roth IRA or traditional IRA might be better for you.)


Taxable account.
What stocks do you have in the taxable account? What firm is the taxable account with? (As mentioned, it's important to coordinate investments among the accounts.)


Desired asset allocation.
Finally, do you have an asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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CyclingDuo
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Re: 28 year old investing advice needed

Post by CyclingDuo » Tue Oct 31, 2017 9:34 am

Aggienat10 wrote:
Mon Oct 30, 2017 3:51 pm
Last month I turned 28, and I need some investing advice. Here is some info about my situation..
-currently single, no children
-not a home owner, I live in an area where housing prices are steep, so I rent.
-I have a modest salary, but I save aggressively
-car paid off, student loans paid off (graduated in 2012), zero credit card debt..so I do not hold debt
-Cash savings, 160K
-chose to have a Brokerage account instead of a Roth..which currently has 25k in it (mostly stable u.s. dividend stock, Apple, F, etc.)
-Currently have 60k in company 401k..increased my contributions to 18k starting last year, with a 3% employer match.
vanguard total US stock market VTSMX-30%
vanguard total int stock market VGTSX-20%
vanguard small cap index fund-15%
vanguard mid cap index fund -15%
Vanguard energy VGENX-10%
vanguard wellesley income VWINX-5%
vanguard money market fund- 5%
(my current returns are only 8% in the company 401k plan)

How do my 401k picks look? Too much overlap? Am I holding too much cash? Am I contributing too much to my 401K? Should I cut back contributions and put more into brokerage account? With housing prices being so high, Should I avoid taking on a mortgage for as long as possible? I believe that the market is overvalued, thus having more cash on hand in the event of a bubble burst makes more sense.
You are in excellent shape! With no debt, and your current ability to max out your 401K, you are going to accumulate quite well in these early years where it matters the most. Do you qualify for a Roth IRA? If so, we'd suggest jumping on that for the 2017 tax year (you'll have until April tax day in 2018) to fund that for 2017 if your salary can support it. Even if it meant contributing enough to get the full company match in the 401K first, then funding the Roth IRA $5500 max, and after that going back to fund as much as you could in the 401K while still having enough cash flow to meet your living needs - the long term effect of doing that would be worth it.

You have a lot of overlap and attempted "tilt" in your 401K. We would agree with adding the Total Bond Market Vanguard Fund and consolidate the money market, and Wellesley into that. The energy, small cap, and mid cap "tilts" are all overlap as well since you already own the total stock market. What led you to those "tilts"?

Nothing wrong with building a core index fund position (Total Stock Market, Total International) in your taxable account as well, along with your individual stock picks.

Again, you are doing very well and are on track for a continued excellent financial standing with your saving and investment. You have a lot of cash (65+% of your portfolio) just sitting there not doing much. At your age, we think you could increase your allocation risk on the equity side of the equation. Do you have other shorter term plans for that cash (say the next 3-7 years)?

Aggienat10
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Re: 28 year old investing advice needed

Post by Aggienat10 » Tue Oct 31, 2017 9:49 am

Emergency fund.
About how much per month are your basic living expenses? How stable is your job? How stable is the company and industry you work in? (I am trying to understand any need for the large emergency fund.)
Job is stable (Healthcare admin). I keep living expenses low 2k per month or less. ..am maxing the 401k..will contribute 18,500k next year.. (mostly domestic/foreign stock) as I have about 35 years until retirement. I want to have cash on hand to invest when this bull market ends. Cash is also for a potential real estate investment in 3-5 years (in 2011 real estate was a good buy, now, in my area it seems overvalued). I was always taught that cash is king, and I sleep better at night knowing that it is available.
IRA.
I strongly suggest opening an IRA at a low cost provider like Vanguard, contributing $5.5k now for 2017, and adding $5.5k another in January for a 2018 contribution.
-The roth is something that I would like to start this year...But again everything is topped out so I do not see a great advantage to this right now..and I am steadily growing the brokerage taxable account.
Taxable account.
What stocks do you have in the taxable account? What firm is the taxable account with? (As mentioned, it's important to coordinate investments among the accounts.)
-I use a well known online brokerage account for taxable. I hold us stock (apple, F, and various energy stocks to hedge against risk... also, vanguard Dividend growth fund (VDIGX). If the market buckles I'll toss it into an inverse ETF or money market. All earnings are automatically reinvested
Desired asset allocation.
Finally, do you have an asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?
-as stated earlier I am 30+ years away from retirement, I am conservative by nature, so I would like to add some US bonds to the 401k, Although I am not sure how necessary this is as bonds can be unstable with rising interest rates.

Aggienat10
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Re: 28 year old investing advice needed

Post by Aggienat10 » Tue Oct 31, 2017 10:09 am

You are in excellent shape! With no debt, and your current ability to max out your 401K, you are going to accumulate quite well in these early years where it matters the most. Do you qualify for a Roth IRA? If so, we'd suggest jumping on that for the 2017 tax year (you'll have until April tax day in 2018) to fund that for 2017 if your salary can support it. Even if it meant contributing enough to get the full company match in the 401K first, then funding the Roth IRA $5500 max, and after that going back to fund as much as you could in the 401K while still having enough cash flow to meet your living needs - the long term effect of doing that would be worth it.
-Thank you for your reply! Yes I do still qualify for the Roth, I am now considering putting in 11k early next year to max out 2017 and 2018. Recommend any all encompassing fund picks for this aside from Vanguard total US stock market?
You have a lot of overlap and attempted "tilt" in your 401K. We would agree with adding the Total Bond Market Vanguard Fund and consolidate the money market, and Wellesley into that. The energy, small cap, and mid cap "tilts" are all overlap as well since you already own the total stock market. What led you to those "tilts"?
-Yes, Our 401k admin would not let us start out without a small and mid cap fund...but I can change that now by reallocating those contributions into Vanguard total stock market...also will reallocate the money market contributions into the total bond fund. I do like holding energy funds as it seems to be a decent hedge against risk. Also I started buying low when energy took a big hit a couple years ago.
Nothing wrong with building a core index fund position (Total Stock Market, Total International) in your taxable account as well, along with your individual stock picks.
-Any other suggestions for Roth picks?
Thanks again
Again, you are doing very well and are on track for a continued excellent financial standing with your saving and investment. You have a lot of cash (65+% of your portfolio) just sitting there not doing much. At your age, we think you could increase your allocation risk on the equity side of the equation. Do you have other shorter term plans for that cash (say the next 3-7 years)?
-I would invest the cash if I did not think that the market was topped out. If the bull market ends It will be nice to have. Also I plan on buying a home in 3-5 years. The goal is to have 250k+ liquid cash by 30, and then reassess the markets at that time

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ruralavalon
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Location: Illinois

Re: 28 year old investing advice needed

Post by ruralavalon » Tue Oct 31, 2017 11:17 am

Aggienat10 wrote:
Tue Oct 31, 2017 9:49 am
ruralavalon wrote:Emergency fund.
About how much per month are your basic living expenses? How stable is your job? How stable is the company and industry you work in? (I am trying to understand any need for the large emergency fund.)
Job is stable (Healthcare admin). I keep living expenses low 2k per month or less. ..am maxing the 401k..will contribute 18,500k next year.. (mostly domestic/foreign stock) as I have about 35 years until retirement. I want to have cash on hand to invest when this bull market ends. Cash is also for a potential real estate investment in 3-5 years (in 2011 real estate was a good buy, now, in my area it seems overvalued). I was always taught that cash is king, and I sleep better at night knowing that it is available.
Now I think that I understand. Your job is stable, living expenses are just $24k annually, and the $160k cash savings is not just a large emergency fund. Instead it is largely savings for a real estate investment in 3-5 years or "dry powder" to buy stocks when the stock market slumps.

Sleeping better at night is an important consideration.

Cash is almost certain to give you a negative real return net of inflation. I suggest that you consider something else that has the prospect of beating inflation while you wait for your investing opportunity.

Aggienat10 wrote:
ruralavalon wrote:IRA.
I strongly suggest opening an IRA at a low cost provider like Vanguard, contributing $5.5k now for 2017, and adding $5.5k another in January for a 2018 contribution.
-The roth is something that I would like to start this year...But again everything is topped out so I do not see a great advantage to this right now..and I am steadily growing the brokerage taxable account.
Early next year is good, I only wanted to make sure you didn't miss the tax-advantaged opportunity for a 2017 contribution.

In general contributing to an IRA ordinarily takes priority over funding a taxable account. Please see the wiki article "prioritizing investments".

Aggienat10 wrote:
ruralavalon wrote:Taxable account.
What stocks do you have in the taxable account? What firm is the taxable account with? (As mentioned, it's important to coordinate investments among the accounts.)
-I use a well known online brokerage account for taxable. I hold us stock (apple, F, and various energy stocks to hedge against risk... also, vanguard Dividend growth fund (VDIGX). If the market buckles I'll toss it into an inverse ETF or money market. All earnings are automatically reinvested
I just wanted to be sure that this would count as U.S. stock for asset allocation purposes.

I think that "market timing", trying to drop out of the market when a crash starts and then buy back in at a low, is a very bad idea. It's just not possible to do that reliably. Most investors who try that wind up selling after the crash has occurred, and buying back in after the market has recovered. That gives them sell low and buy high, the worst possible result.


Asset allocation.
Aggienat10 wrote:
ruralavalon wrote:Desired asset allocation.
Finally, do you have an asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?
-as stated earlier I am 30+ years away from retirement, I am conservative by nature, so I would like to add some US bonds to the 401k, Although I am not sure how necessary this is as bonds can be unstable with rising interest rates.
At age 28 and 30+ years from retirement I suggest around 20% in bonds. Some people consider that "conservative", I don't. I think it's middle of the road.

Some people have been expecting a drop in bond values since 2009, because of rising interest rates. Most here expect that any impact from rising interest rates will likely be small and temporary, that higher interest rates will more than make up for that loss in bond values, and that higher interest rates will be good for the long-term investor. Invest for the long-term. I don't think that bonds are unstable.

There has been a lot of discussion here about bond values and rates, try the Google search box (upper right, this page) for more information than you probably want about this issue. For what it's worth I use intermediate-term bond funds.

I suggest around 20-30% of stocks in international stocks. Some people consider that "conservative", I don't. I think it's b middle of the road.

That would work out to about 20%, 20% international stocks and 60% domestic stocks. Sleeping better at night is an important consideration. Asset allocation is a very personal decision that you must make based on your own ability, willingness and need to take risk.


Example portfolio.
Here is an example portfolio that you could consider using that asset allocation, as an illustration. The percentages are rounded off. Sometimes I show 00% to indicate funds you could consider adding in the future.

Taxable account (26% of total; $25k; adds $????k/yr)
26%, U.S. stocks and Vanguard Dividend Growth (VDIGX)
00%, Vanguard Total International Stock Index Fund
00%, Vanguard Total Stock Market Index Fund

401k (63% of total; $60k; add $18.5k/yr)
23%, Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
20%, Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
20%, Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)

Roth IRA (10% of total; $11k; add $5.5k/yr)
10%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)


Rebalancing.
Because they investments will grow at different and unpredictable rates, you may occasionally have to rebalance to get back to the asset allocation you want. You can simply and easily do that just by exchanging between funds inside your 401k.


Tax-efficiency.
For future reference when you add contributions to the taxable account, consider using very tax-efficient stock index funds. Please see the wiki article "tax-efficient fund placement". Examples would include Vanguard Total International Stock Index Fund and Vanguard Total Stock Market Index Fund.

. . . . .

I suggest that you read one or two books on general investing, please see the wiki article "books: recommendations and reviews".

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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